With the G20 announcing that austerity will reign – with efforts to cut deficits on the backs of the poor and not banks, it is important to understand exactly what it is. James Corbett of the Corbett report does a fantastic job explaining ‘austerity’ of with this overview of what it is, how it works, who it hurts.

“What actually happened at the summit is that the global elites just stuck the bill for their drunken binge with the world’s poor, with the people that are most vulnerable,” Klein says.

As I described (G20 and Deficits) in the week’s leading up to the G20 summit, the push was for austerity and cuts to social spending, regardless of how much it would hurt the poor and could easily, according to some economists lead us to a new depression. Canada (with France, Britain and Germany, among others) led the charge. Well, it happened. Austerity reigns.

Here are a number of excellent articles on the aftermath of the G20 meetings themselves.

China relies heavily on selling cheap exports to the U.S., while the U.S. relies as much on China buying it’s treasury bonds in order to service the U.S. debt. This relationship has created a kind of an equilibrium where neither side wants to tread too strongly on the other.

However, the U.S. is accusing China of falsely depreciating it’s currency (the renminbi) so that China can increase its exports to the U.S. (and other countries) based on the low cost of buying their products. The U.S. is losing export opportunities due to it high exchange rate relative to the renminbi.

This all points to a key problem facing global capitalism in the wake of the financial crisis – lack of demand and overproduction. In the wake of low depressed wages worldwide and high unemployment, there is a scramble to get at whatever consumer demand they can round up. Thus the focus on countries like China that still have global demand for their products, and the concern that they are doing it artificially. The countries with strong trade surpluses like China are seen to be “taking more than their fair share of world demand and are under pressure to boost their domestic markets”.

This pressure on surplus countries to create consumer demand will surely increase if the deficit warrior approach of the G20 called for by Canada, Britain, Germany and others comes into effect.

An article by market analysts Marshall Auerback and Rob Parenteau, “The G20 votes for global depression” takes the argument even further, suggesting that deficit mania at this time will lead to a new Great Depression.

Their contention, like many others (including Krugman), is that government must ‘increase spending (either directly or via tax cuts) to arrest the downward spiral of private spending’.

However, instead of increasing spending, G20 governments are cutting it to pay down deficits. The authors argue that given current levels of high unemployment, these spending cuts will undermine the ‘reasonable level of demand’ for goods and services necessary for recovery. This will cause the economy to plunge further into recession and ultimately into sustained depression.

All, in the words of the authors, to serve the bankers’ interest.

The article ends with this troubling warning:

The more the bankers’ interest is served, the worse and more debt-burdened the economy will become. Their gains have been bought at the price of domestic austerity. The G20 Communique (PDF) irresponsibly and immorally ratifies this disgraceful state of affairs and we will all pay a severe price going forward.

The G20 policy makers, and their allies in finanzkapital, are like vultures picking over a dying carcass. And the rest of us are helpless because the institutions designed to serve broader public purpose have become subverted. We are making bond holders and big bankers whole at the expense of impoverishing the entire society.

It is hard to avoid drawing very dark conclusions. Our policy making elites have discovered that the underclass doesn’t matter politically anymore, so why respond to it? That indifference is extending to the middle class. Ordinary, struggling folks are all becoming so demoralized that they present:

1. No voting threat, because none of the major political parties in Europe or the US genuinely represent their interests (and haven’t for years). There have been, as a result, no political price to pay for such shameless predatory capitalism.

2. They present no power threat, because they have been systematically destroyed over the last 30 years and what is happening now in Europe represents the final assault on the residue of the 20th century welfare state (the US social safety net eviscerated well before this).

The message from the G20 seems to be this: We’re through with domestic spending to employ the underclass.

There are decent jobs for about 20% of the working-age population in the west. And for the rest? Poverty a la South America. It is extraordinary that voters around the globe continue to tolerate this corrupt state of affairs, but it’s getting increasingly hard to see a way out.

Organization for Economic Cooperation and Development says money is ‘gone’

It is becoming more and more clear what G20 financial reform looks like – punishing cuts to the poor and middle class and obedience to the banks.

As I wrote on a few days ago, the G20 has decided to focus its energy at the Toronto summit on pressuring member nations to implement deficit cutting and fiscal austerity through deep and painful budget cuts.

Translation: countries need to start slashing spending and then pronounce it publicly and immediately to ensure investors hear it. This is expected to calm markets and boost growth, despite much evidence to the contrary (for example here, here, and here)

Canada, of course, was right in on the action: “We’ve pushed hard for those countries that need to fiscally consolidate in Europe to get on with it and to demonstrate their resolve” said Canadian Finance Minister Jim Flaherty. The Bank of Canada is on-board as well.

Gurria further claimed that all the (public) money is gone. Thus, all we can really do is start cutting and becoming more ‘flexible’ (ie: crushing unions, increasing temp and precarious work to fix market needs), and making the world ripe for the markets:

“Countries need flexibility in labor markets, exchange rates; they need structural adjustment policies like competition, education, innovation,” said Gurria. “These are the things that are going to make the recovery hold, because you can’t hold it up with public money any more. It’s gone.”

And where did the public money go? To bank bailouts, to housing bubbles, to tax cuts for the rich, to corporate subsidies, etc… and now we get to pay for all that.